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How About a Snowball Fight?

The debt-snowball method is a debt reducing strategy. How does it work? One who owes on more than one account pays off the accounts starting with the smallest balances first, while paying the minimum on the larger debts. Once the smallest is paid off you move on to the next smallest debt. This is an effective form of debt management that is most often applied to repaying revolving credit, like credit cards.

The method has gained more recognition recently because it is a¬†primary debt-reduction method taught by many financial and wealth experts. However, it has existed for a while, as people have a tendency to want to take care of smaller, easier¬†tasks first.

The basic steps to implement this strategy are pretty simple. List out all the debts in ascending order from smallest to largest balance. Commit to paying a minimum payment on every debt. Determine how much extra can be applied towards the debt you want to pay off first. Any extra cash should go to paying off the first debt. Once the first debt is paid, apply those payments and extra money to the second smallest debt. Continue this process until all debts are paid in full.

The theory is that by the time final debts are reached, the extra money paid toward the larger debts will grow quickly, similar to a snowball rolling down a hill and increasing in size. By paying the smaller debts first , the payee sees fewer bills as each debt is paid off, thus giving ongoing positive feedback on their progress towards eliminating their debt.